Sh. Rajesh Mayor, Jalandhar V. The Income-tax Officer, Jalandhar city

ITA 571/ASR/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0794 (ITAT-AMRITSAR)
• Duration Of Justice: 1 year(s) 7 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-05-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 18-02-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 24-09-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. A.D. JAIN, JUDICIAL MEMBER AND SH. T.S. KAPOOR, ACCOUNTANT MEMBER ITA NO.571(ASR)/2014 ASSESSMENT YEAR:2010-11 PAN:ACGPM7469P SH. RAJESH MAYOR, VS. INCOME TAX OFFICER, 170, NEW RAJINDER NAGAR, WARD 1(3), JALANDHAR. JALANDHAR. (APPELLANT) (RESPONDENT) APPELLANT BY:SH. SANDEEP VIJH, AR RESPONDENT BY: SH. KANCHAN GARG, DR DATE OF HEARING: 18/02/2016 DATE OF PRONOUNCEMENT: 04/05/2016 ORDER PER A.D. JAIN, JM: THIS IS THE ASSESSEES APPEAL FOR THE ASSESSMENT Y EAR 2010-11, AGAINST THE ACTION OF THE LD. CIT(A) IN CONFIRMING THE TAXATION OF RECEIPT OF RS. 54 LAKHS BY THE ASSESSEE FROM THE PROPOSED SELL ER OF IMMOVABLE PROPERTY, AS CAPITAL GAIN. 2. THE SHORT FACTS ARE THAT THE ASSESSEE ENTERED IN TO AN AGREEMENT WITH MADHU KALRA AND GAURI SHANKER FOR PURCHASE OF A HOUSE. THE AGREEMENT DID NOT FRUCTIFY AND THE PROPOSED SELLERS HAD, AFTER PROLONGED LITIGATION, TO PAY COMPENSATION OF RS. 54 LAKHS TO THE ASSESSEE. THE AO ITA NO.571(ASR)/2014 A.Y. 2010-11 2 ASSESSED THE SAID RECEIPT AS CAPITAL GAINS INVOLVIN G TRANSFER OF PROPERTY WITHIN THE MEANING OF SECTION 2(47) OF THE INCOME T AX ACT, 1961. 3. BY VIRTUE OF THE IMPUGNED ORDER, THE LD. CIT(A) DISMISSED THE ASSESSES APPEAL. 4. AGGRIEVED, THE ASSESSEE IS IN FURTHER APPEAL. 5. THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED T HAT THE AMOUNT OF RS.54 LAKHS RECEIVED BY THE ASSESSEE FROM THE PROPO SED SELLERS IS NOT LIABLE TO TAX, AS THERE IS NO TRANSFER. RELIANCE H AS BEEN PLACED ON VANIA SILK MILLS VS. CIT, 191 ITR 647 (SC), AS PER WHICH , FOR INVOKING THE PROVISIONS OF SECTION 45 OF THE ACT, THERE HAS TO B E A TRANSFER AND MERE EXTINGUISHMENT OF RIGHT DOES NOT BRING ABOUT TRANSF ER. IT HAS BEEN CONTENDED THAT THE ASSESSEE, BY EXERCISING HIS RIGH T TO CLAIM COMPENSATION HAS NOT TRANSFERRED ANY RIGHTS, WHICH COULD GIVE RISE TO CAPITAL GAIN; THAT THE RIGHTS OF THE ASSESSEE UNDER THE ORIGINAL AGREEMENT ARE STILL INTACT, WHICH FACT IS SUPPORTED BY THE L ITIGATION BETWEEN THE BUYER AND SELLERS IN THE SHAPE OF CIVIL SUIT FILED BY THE ASSESSEE BEFORE THE CIVIL JUDGE, CHANDIGARH ON 30.10.2009, THE CAUS E OF ACTION FOR WHICH WAS THAT A CHEQUE OF RS. 27 LAKHS PAID BY INTENDING SELLER HAD BOUNCED INITIALLY AND SUCH BOUNCING OF CHEQUE WAS TO REVIV E THE AGREEMENT DATED 24.05.2008; THAT THE SUIT WAS FOR ADDITIONAL AMOUNT OF RS.46 LAKHS, RS. 1 CRORE BEING THE COMPENSATION FOR NOT FULFILLING TH E ORIGINAL CONTRACT DATED 24.05.2008, LESS RS.54 LAKHS RETURNED THROUGH TWO P AYMENTS OF RS. 27 LAKHS EACH, ALONGWITH INTEREST. THE LD. COUNSEL HAS FURTHER CONTENDED ITA NO.571(ASR)/2014 A.Y. 2010-11 3 THAT IN CIT VS. J. DALMIA, 149 ITR 215 (DELHI), T HE HONBLE DELHI HIGH COURT HAS, WHILE DEALING WITH THE ISSUE AS TO WHETH ER RIGHT TO SUE IS A PROPERTY, HELD THAT THE CONTRACT FOR SALE OF PROPER TY DOES NOT CREATE ANY INTEREST OR CHARGE ON SUCH PROPERTY. IT HAS BEEN S UBMITTED THAT IN SIDHRAJBHAI VS. STATE OF GUJARAT, AIR 1963 SC 540 , WHICH WAS REFERRED TO IN J. DALMIA (SUPRA), IT HAS BEEN HELD THAT EV EN IF THE RIGHT TO RECEIVE DAMAGES FOR BREACH OF CONTRACT IS ASSUMED TO BE A PROPERTY, IT CANNOT BE TRANSFERRED UNDER SECTION 6(E) OF THE TRANSFER OF PROPERTY ACT, ACCORDING TO WHICH PROVISION, A MERE RIGHT TO SUE CANNOT BE TRANSFERRED. IT HAS BEEN SUBMITTED THAT AS SUCH, THE DAMAGES/COMPENSATI ON RECEIVED BY THE ASSESSEE CANNOT BE SAID TO BE FOR TRANSFER OR RELIN QUISHMENT OF THE RIGHT TO SUE FOR SPECIFIC PERFORMANCE AND CONSEQUENTLY, T HERE CANNOT BE ANY CAPITAL GAIN. REFERENCE HAS BEEN MADE TO 189 ITR (S T.) 122, THE ORDER OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. J. DALMIA (SUPRA) IN S.L.P (CIVIL) 17158 OF 1985 189 (ST. ) 122, WHEREBY THE HONBLE SUPREME COURT DISMISSED THE DEPARTMENTS SLP AGAINST THE AF ORESAID JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF J. DAL MIA (SUPRA). 6. ON THE OTHER HAND, THE LD. DR HAS PLACED STRONG RELIANCE ON THE IMPUGNED ORDER. IT HAS BEEN CONTENDED THAT AS CORRE CTLY OBSERVED BY THE LD. CIT(A), THE ASSESSEE HAD RECEIVED THE COMPENSAT ION FOR BREACH OF CONTRACT ON THE PART OF THE SELLERS IN ORDER TO REL INQUISH HIS RIGHT TO GET THE PROPERTY REGISTERED IN HIS NAME THROUGH A COURT OF LAW; THAT HAVING ITA NO.571(ASR)/2014 A.Y. 2010-11 4 RELINQUISHED SUCH RIGHT, THE ASSESSEE WAS DEFINITEL Y BENEFITED BY THE AMOUNT OF RS.54 LAKHS FOR INCURRING ANY EXPENDITUR E AND SUCH AMOUNT RECEIVED WAS CORRECTLY TAXED AS CAPITAL GAIN. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND HAVE PER USED THE MATERIAL AVAILABLE ON RECORD. THE ASSESSEE ENTERED INTO AN A GREEMENT TO SELL DATED 24/5/2008, AS A BUYER FOR PURCHASING RESIDENTIAL HO USE FOR A TOTAL CONSIDERATION OF RS. 4,04,00,000. ADVANCE PAYMENT O F RS. 50 LAKHS MADE AS BIANA BEFORE EXECUTING THE AGREEMENT. ANOTHER PA YMENT OF RS. 50 LAKHS WAS TO BE MADE BY THE ASSESSEE BY 31/7/2008 A ND THE LAST DATE FOR THE EXECUTION OF SALE DEED WAS FIXED AS 30/11/2 008. THE DATE OF MAKING THE SECOND PAYMENT OF RS. 50 LAKHS WAS EXTE NDED TO 7.8.2008, THEN TO 14.8.2008 AND THEN TO 16.8.2008 AS EVIDENT FROM THE REVERSE OF THE AGREEMENT FILED. THE SELLERS BACKED OUT OF THE AGREEMENT AND ALLEGED THAT THE BUYER HAD FAILED TO MAKE THE SECOND PART PAYMENT OF RS. 50 LAKHS BY 31.07.2008. A LEGAL NOTICE DATED 14/8/200 8 GIVEN TO SELLER AND A REPLY DATED 18/8/2008 WAS RECEIVED FROM THE ADVOC ATE OF THE SELLER. THE SELLER INDICATED HIS INTENTION TO RETURN THE AD VANCE RECEIVED ALONG WITH CERTAIN MONETARY COMPENSATION. 7.1 IN THE CASE FILED BEFORE CIVIL JUDGE, CHANDIGAR H BY THE BUYER I.E. ASSESSEE TO RESTRAIN THE OTHER PARTIES FROM SELLING THE PROPERTY TO ANY OTHER PERSON AND ALSO FOR DIRECTING THE SELLERS TO ACCEPT THE PAYMENT OF ITA NO.571(ASR)/2014 A.Y. 2010-11 5 RS. 50 LAKHS. ORDER DATED 1/10/2008 WAS PASSED BY T HE CIVIL JUDGE RESTRAINING THE SELLERS FROM ALIENATING THE SUIT PR OPERTY. 7.2. AN AGREEMENT WAS ARRIVED AT BETWEEN THE BUYER AND SELLER ON 28/11/2008]. THE SELLER RETURNED THE SUM OF RS. 50 LAKHS THROUGH CHEQUE DATED 18/8/2008 AND THE FURTHER SUM OF RS. 5 4 LAKHS WAS RETURNED IN THE SHAPE OF TWO POST CHEQUES OF RS. 27 LAKHS EACH WHICH WERE DATED 15/12/2008 AND 15/1/2009. IT WAS AGREED THAT THE ABOVE TWO CHEQUES WILL BE RETURNED ON RECEIPT OF CASH. ON E OF THE TERMS OF AGREEMENT WAS THAT IF THE CHEQUES ISSUED GOT DISHON OURED, THE RIGHTS OF THE BUYER, I.E., THE ASSESSEE, IN THE AGREEMENT DAT ED 24/5/2008 WOULD GET REVIVED. FURTHER, THE CHEQUE FOR RS. 50 LAKHS WAS GOT ENCASHED AND THE CHEQUE NO. 335686 DATED 15/12/2008 WAS RETURNED ON RECEIPT OF CASH. THE SECOND CHEQUE DATED 15/1/2009 WAS SENT TO THE BANK FOR COLLECTION AS PAYMENT IN CASH WAS NOT RECEIVED BY T HE DUE DATE. THIS CHEQUE BOUNCED AND THE ASSESSEE/BUYER FILED A CRIMI NAL COMPLAINT AGAINST THE SELLER U/S 138 OF THE NEGOTIABLE INSTRU MENTS ACT BEFORE THE JUDICIAL MAGISTRATE, 1 ST CLASS, JALANDHAR ON 6/3/2009. 7.3. A PETITION WAS FILED BY THE SELLERS WITH THE HONBLE HIGH COURT FOR QUASHING THE CRIMINAL COMPLAINT DATED 6/3/2009 FILE D BY THE ASSESSEE. THE HONBLE HIGH COURT, THROUGH ITS ORDER DATED 10/ 7/2009, DIRECTED THE PETITIONERS TO PAY RS. 27 LAKHS TO THE RESPONDENT A ND THEREUPON THE CRIMINAL COMPLAINT WOULD STAND QUASHED WITHOUT PREJ UDICE TO THE CIVIL RIGHTS OF THE PARTIES. ITA NO.571(ASR)/2014 A.Y. 2010-11 6 7.4. FOLLOWING THE ORDER OF THE HIGH COURT, THE SE LLERS PAID RS. 27 LAKHS TO THE BUYER THROUGH DRAFT DATED 9/7/2009. 7.5. A CIVIL SUIT WAS FILED BEFORE THE CIVIL JUDGE, CHAN DIGARH ON 30/10/2009, SINCE THE CHEQUE OF RS. 27 LAKHS HAD BO UNCED INITIALLY AND BOUNCING OF CHEQUE WAS TO REVIVE THE RIGHTS OF THE BUYER IN THE AGREEMENT DATED 24/5/2008. THIS SUIT WAS FOR ADDITIONAL AMOUN T OF RS. 46 LAKHS [ 1,00,00,000 BEING THE COMPENSATION FOR NOT FULFILLI NG THE ORIGINAL CONTRACT DATED 24/5/2008 LESS RS. 54,00,000 RETURNE D THROUGH TWO PAYMENTS OF RS. 27 LAKHS EACH] ALONG WITH INTEREST. A COUNTER CLAIM WAS FILED BY THE SELLER FOR RS. 54 LAKHS. THIS CIVIL S UIT IS STILL PENDING DISPOSAL. 8. AT THE OUTSET, SECTION 6(E) OF THE TRANSFER OF P ROPERTY ACT PROVIDES THAT PROPERTY OF ANY KIND MAY BE TRANSFERRED, BUT A MERE RIGHT TO SUE CANNOT BE TRANSFERRED. IN J. DALMIA (SUPRA), THE HONBLE DELHI HIGH COURT HAS HELD THAT A MERE RIGHT TO SUE CANNOT BE T RANSFERRED; THAT IN ORDER THAT A RECEIPT OR ACCRUAL OF INCOME MAY ATTRA CT THE CHARGE OF TAX ON CAPITAL GAINS, THE SINE QUA NON IS THAT THE RECEIPT OR ACCRUAL MUST HAVE ORIGINATED IN A TRANSFER WITHIN THE MEANING OF SE CTION 45 READ WITH SECTION 2(47) OF THE ACT; AND THAT SINCE THERE CANN OT HAVE ANY TRANSFER OF A MERE RIGHT TO SUE, THE AMOUNT RECEIVED AS DAMAGES WAS NOT ASSESSABLE AS CAPITAL GAINS. THIS DECISION IS DATED 21.05.1984 AND WAS AVAILABLE AT THE TIME OF PASSING OF THE ASSESSMENT ORDER, I.E, O N 22.03.2013. THE AO ITA NO.571(ASR)/2014 A.Y. 2010-11 7 RELIED ON K.R. SRINATH VS. ACIT, 268 ITR 436 (MA DRAS) AND CIT VS. LAXMIDEVI RATANI, 296 ITR 363 (MP) AGAINST THE ASS ESSEE. 9. NOW, AS IS WELL SETTLED [ REFERENCE MAY BE MADE TO CIT VS VEGETABLE PRODUCTS LIMITED, 88 ITR 192 (SC) AND CONTROLLER OF ESTATE DUTY VS. R. KANAKASABAI AND OTHERS, 89 ITR 251 (SC)], WHERE TH ERE ARE CONFLICTING DECISIONS OF DIFFERENT HIGH COURTS, THE ONE IN FAV OUR OF THE ASSESSEE SHOULD BE FOLLOWED. 10. FURTHER, AS RIGHTLY CONTENDED, IN CIT VS. B.C . SRINIVAS SHETTY, 128 ITR 294 (SC), WHERE THERE IS NO COST INVOLVED, AS IS THE CASE HEREIN, NO CAPITAL GAIN EXISTS AND FOR THIS REASON ALSO, NO CAPITAL GAIN IS EXIGIBLE TO TAX. 11. FURTHER, IT HAS ALSO RIGHTLY BEEN SUBMITTED, IN KEEPING WITH THE FOLLOWING DECISIONS, THAT DAMAGES/COMPENSATION RECE IVED FOR NON- PERFORMANCE OF CONTRACT IS NOT LIABLE TO TAX: I) CIT VS. SAURASHTRA CEMENT, 325 ITR 422 (SC) II) KUMARPAL MOHANLAL JAIN VS. ITO, 41 TAXMAN.CO M 55 (MUM) III) DCIT VS. WINSOME YARNS LTD., 66 SOT 19 (CHD .) 12. THE ABOVE SETTLED POSITION HAS NOT BEEN TAKEN I NTO CONSIDERATION BY THE LD. CIT(A) WHILE PASSING THE IMPUGNED ORDER. 13. FOR THE ABOVE DISCUSSION, THE ORDER UNDER APPEA L IS UNSUSTAINABLE IN THE EYE OF LAW, IN KEEPING WITH J. DALMIA (SUP RA) AND OTHER DECISIONS ITA NO.571(ASR)/2014 A.Y. 2010-11 8 REFERRED TO. THE SAME IS REVERSED. THE GRIEVANCE OF THE ASSESSEE IS JUSTIFIED AND IS ACCEPTED AS SUCH. ACCORDINGLY, THE ADDITION IS DELETED. 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 04/05/ 2016. SD/- SD/- (T.S. KAPOOR) (A.D. JAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER /SKR/ DATED: 04/05/2016 COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE:SH. RAJESH MAYOR, JALANDHAR. 2. THE ITO WARD 1(3), JALANDHAR 3. THE CIT(A), JALANDHAR 4. THE CIT, JALANDHAR. 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR.